Will Kenya get a bite of the green tech boom?

Welcome back. While we were off on Monday, China’s finance ministry published a draft of new sustainability disclosure standards, based on guidelines from the International Sustainability Standards Board. This is a major win for the ISSB as it vies to become the key global standard for disclosing climate risks, and sustainability issues more broadly.

And yesterday, US Treasury secretary Janet Yellen unveiled new guidelines aimed at improving the integrity of voluntary carbon credits. But even as she announced the new rules, she warned that “corporate buyers should prioritise reducing their own emissions” rather than rely on credits to offset their pollution.

For today’s newsletter, I asked Kenyan market-watchers for their thoughts on President William Ruto’s historic trip to Washington last week.

Ruto and Kenyan manufacturers hope the green transition will create durable new jobs. The talks, however, highlighted the divide between countries such as the US, which plans to subsidise the energy transition to create lasting employment, and debt-burdened developing countries that are less able to produce higher-value green tech.

Green investment opportunities

Ruto puts Kenya’s green opportunities on display during White House visit

Nairobi is open for business, Kenya’s President William Ruto declared in Washington last week, as he touted more than $20bn in investment opportunities across east Africa’s economic powerhouse.

The first state visit by an African leader to the White House in 16 years came during a difficult period for US-Africa partnerships, at a time of mounting US rivalry with Russian and Chinese presence on the continent. (President Joe Biden also broke a pledge to visit sub-Saharan Africa in 2023, and the US president only made one phone call to an African head of state last year. That call was to Ruto, regarding an issue in Biden’s own hemisphere.)

Meanwhile, a punitively high cost of capital and post-pandemic debt burdens have been among the factors holding back African growth. Greater access to foreign capital and markets could help support sustainable development in sub-Saharan Africa where, in 2019, 389mn people lived on less than $2.15 a day. Officials used Ruto’s visit to highlight recent investments by US companies and development finance institutions in Kenya’s clean power sector, housing, and cloud computing.

“This feels like the US putting Kenya on a pedestal,” Erick Mokaya, founder of the African equities research group Mwango Capital, told me.

Brad Smith, chief executive of Microsoft, was among the business heavyweights who attended last week’s White House dinner. During the visit, the US software group announced it would partner with Abu Dhabi-based tech company G42 to invest $1bn in a geothermal-powered data centre in Kenya. 

The goal is to make Kenya the hub for up to one gigawatt of clean energy-powered data processing (about equal to the electric generating capacity of a large nuclear reactor). At the White House, Biden and Ruto also announced a new “climate and clean energy industrial partnership”, which they said would use loans with generous terms from multilateral development banks to lower the cost of capital for deploying clean energy technology in east Africa.

Finally, the US Development Finance Corporation announced a $180mn loan to Acorn, a real estate developer, to build and operate student rental housing in Kenya, as well as smaller loans supporting smartphone access and the growth of the electric vehicle sector.

Challenges in the manufacturing sector

Yet the visit highlighted the trade-offs Ruto has faced while courting US investment. Kenya’s abundant green energy may have helped him win a cloud computing deal, but talks produced little progress for the country’s strained manufacturing sector, which has faced sustained inflation and higher taxes under Ruto.

Kenya’s president has argued for tax rises as tough but necessary, and has pursued an IMF-backed privatisation programme, announcing last year that the government would sell stakes in 11 state-owned enterprises.

Even as Kenya sticks to a more fiscally disciplined playbook, the US, the IMF’s largest shareholder, has pursued a decidedly protectionist green industrial policy. The administration has subsidised a more expensive and slower energy transition, with domestic sourcing incentives and higher tariffs on green products from China, gambling that a Made In America green policy will be more politically sustainable. Countries like Kenya that do not issue the global reserve currency — and are struggling to pay down debt — do not have the same luxury.

“SMEs [small- and medium-sized enterprises] are struggling,” Job Wanjohi, head of policy research at the Kenya Association of Manufacturers, told me. He said small businesses were being battered by the high cost of energy and capital, and by rising taxes. Those taxes could include a recently proposed “eco levy” backed by the Ruto administration, which targets products such as rubber tyres and plastic packaging.

Job and business opportunities in Africa, for Africans

Last week’s discussions also included talk of renewing the US African Growth and Opportunity Act, a trade programme launched in 2000 that gives thousands of products in eligible African countries duty-free access to the US market.

Yet, at a joint press conference with Biden, Ruto signalled that US-made green goods would be central to the partnership, remarking that “Africa’s resource potential is a huge opportunity to deploy US technology and investment to catalyse unprecedented growth through green industrialisation”.

The comment is indicative of a wider dilemma facing emerging markets seeking to pursue green growth. African economies have abundant resources to leverage in the energy transition — not least, a young workforce. By 2050, the UN forecasts that one-third of the world’s people aged 15 to 24 will be African.

President Ruto is under pressure to deliver jobs for a growing population of urban youth, and during his trip to Washington doubled down on calls for investment in what he called the “Silicon Savannah”, pitching Kenyans’ skills in digital jobs such as business process outsourcing.

Companies outsourcing the back office can create jobs in emerging markets, but employment in manufacturing has long been prized for the economic complexity and sustained prosperity it can deliver.

However, emerging economies like Kenya face increasing pressure to import green goods from richer countries that are competitively subsidising domestic climate tech. High borrowing costs and the debt crunch facing major African economies have further restricted their negotiating room.

“We need help as a country because of the debt situation,” Mokaya said. “At this point, I don’t think the thinking is so much, ‘are we helping Kenya move up the value chain or create more sustainable jobs.’” As a result, he reflected on last week’s summit, “the sustainability of these deals is in question. In the next three, five years, maybe they create a few jobs, but beyond that, I don’t know.”

“You have to recognise the scale of the employment challenge facing Kenya,” Fergus Kell, a researcher on the political economy of east Africa at think-tank Chatham House, told me. However, he added, there are limits to the growth that can be catalysed by employment in digital jobs, which Ruto has emphasised.

“Let them get the jobs outside the country, but let them earn for the growth and development of the country,” Wanjohi said of digital jobs.

“The idea of jobs where they’re just able to log on and work remotely for foreign companies is one that is intuitively appealing, and certainly suits Ruto in terms of how he can present it on the domestic stage,” Kell said. “It’s right to question whether that will make a transformational change for Kenya.”

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